Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices 22681 

Dated: April 17, 2010. 

Kent Kuyumjian, 

Acting Assistant Commissioner, Management. 

[FR Doc. 2010–9904 Filed 4–28–10; 8:45 am] 

BILLING CODE 4810–35–M 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

Prohibited Service at Savings and 

Loan Holding Companies 

AGENCY: Office of Thrift Supervision 

(OTS), Treasury. 

ACTION: Notice and request for comment. 

SUMMARY: The Department of the 

Treasury, as part of its continuing effort 

to reduce paperwork and respondent 

burden, invites the general public and 

other Federal agencies to comment on 

proposed and continuing information 

collections, as required by the 

Paperwork Reduction Act of 1995, 44 

U.S.C. 3507. The Office of Thrift 

Supervision within the Department of 

the Treasury will submit the proposed 

information collection requirement 

described below to the Office of 

Management and Budget (OMB) for 

review, as required by the Paperwork 

Reduction Act. Today, OTS is soliciting 

public comments on its proposal to 

extend this information collection. 

DATES: Submit written comments on or 

before June 28, 2010. 

ADDRESSES: Send comments, referring to 

the collection by title of the proposal or 

by OMB approval number, to 

Information Collection Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552; send a facsimile 

transmission to (202) 906–6518; or send 

an e-mail to 

infocollection.comments@ots.treas.gov. 

OTS will post comments and the related 

index on the OTS Internet Site at 

http://www.ots.treas.gov. In addition, 

interested persons may inspect 

comments at the Public Reading Room, 

1700 G Street, NW., by appointment. To 

make an appointment, call (202) 906– 

5922, send an e-mail to 

public.info@ots.treas.gov, or send a 

facsimile transmission to (202) 906– 

7755. 

FOR FURTHER INFORMATION CONTACT: You 

can request additional information 

about this proposed information 

collection from Lane C. Langford (202) 

906–7027, Office of Thrift Supervision, 

1700 G Street, NW., Washington, DC 

20552. 

SUPPLEMENTARY INFORMATION: OTS may 

not conduct or sponsor an information 

collection, and respondents are not 

required to respond to an information 

collection, unless the information 

collection displays a currently valid 

OMB control number. As part of the 

approval process, we invite comments 

on the following information collection. 

Comments should address one or 

more of the following points: 

a. Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of OTS; 

b. The accuracy of OTS’s estimate of 

the burden of the proposed information 

collection; 

c. Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

d. Ways to minimize the burden of the 

information collection on respondents, 

including through the use of 

information technology. 

We will summarize the comments 

that we receive and include them in the 

OTS request for OMB approval. All 

comments will become a matter of 

public record. In this notice, OTS is 

soliciting comments concerning the 

following information collection: 

Title of Proposal: Prohibited Service 

at Savings and Loan Holding 

Companies. 

OMB Number: 1550–0117. 

Regulation Requirements: 12 CFR 

585.110 and 12 CFR 516. 

Form Number: N/A. 

Description: In order for a prohibited 

person to obtain or to continue in 

certain positions with a savings and 

loan holding company (SLHC), the 

SLHC or the individual will need to 

apply to the OTS for an approval order 

for a case-by-case exemption. OTS does 

not believe that this requirement is 

punitive in intent. Rather, the primary 

criteria in assessing such applications is 

whether the prohibited person in his/ 

her proposed capacity at the SLHC 

participates in the major policy making 

functions of the SLHC or threatens the 

safety and soundness of the insured 

depository institution that is controlled 

by the SLHC, the interests of its 

depositors, or the public confidence in 

the institution. 

Type of Review: Extension of a 

currently approved collection. 

Affected Public: Businesses or other 

for-profit. 

Estimated Number of Respondents: 

15. 

Estimated Burden Hours per 

Responses: 16 hours. 

Estimated Frequency of Response: On 

occasion. 

Estimated Total Burden: 240 hours. 

Dated: April 23, 2010. 

Ira L. Mills, 

Paperwork Clearance Officer, Office of Chief 

Counsel, Office of Thrift Supervision. 

[FR Doc. 2010–9915 Filed 4–28–10; 8:45 am] 

BILLING CODE 6720–01–P 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[Docket ID OTS–2010–0008] 

Supplemental Guidance on Overdraft 

Protection Programs 

AGENCY: Office of Thrift Supervision, 

Treasury (OTS). 

ACTION: Proposed Guidance with request 

for comment. 

SUMMARY: OTS is proposing to issue this 

Supplemental Guidance on Overdraft 

Protection Programs (Supplemental 

Guidance) to update the Guidance on 

Overdraft Protection Programs OTS 

previously issued on February 18, 2005. 

DATES: Comments must be submitted on 

or before June 28, 2010. 

ADDRESSES: You may submit comments, 

identified by OTS–2010–0008, by any of 

the following methods: 

• E-mail: 

regs.comments@ots.treas.gov. Please 

include ID OTS–2010–0008 in the 

subject line of the message and include 

your name and telephone number in the 

message. 

• Fax: (202) 906–6518. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: OTS– 

2010–0008. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days, Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: OTS–2010–0008. 

Instructions: All submissions received 

must include the agency name and 

docket number for this rulemaking. All 

comments received will be entered into 

the docket and posted on 

Regulations.gov without change, 

including any personal information 

provided. Comments, including 

attachments and other supporting 

materials received are part of the public 

record and subject to public disclosure. 

Do not enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

Viewing Comments Electronically: 

OTS will post comments on the OTS 

Internet Site at http://www.ots.treas.gov/ 

?p=LawsRegulations. 

mstockstill on DSKH9S0YB1PROD with NOTICES

22682 Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices 

Viewing Comments Onsite: You may 

inspect comments at the Public Reading 

Room, 1700 G Street, NW., by 

appointment. To make an appointment 

for access, call (202) 906–5922, send an 

e-mail to public.info@ots.treas.gov, or 

send a facsimile transmission to (202) 

906–6518. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

FOR FURTHER INFORMATION CONTACT: 

April Breslaw, Director, Consumer 

Regulations, Compliance and Consumer 

Protection, (202) 906–6989; or Richard 

Bennett, Senior Compliance Counsel, 

Regulations and Legislation Division, 

(202) 906–7409, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: 

Background 

OTS is proposing to issue this 

Supplemental Guidance on Overdraft 

Protection Programs (Supplemental 

Guidance) to update the Guidance on 

Overdraft Protection Programs 

(Overdraft Guidance) OTS issued 

February 18, 2005 (70 FR 8428). OTS 

issued the Overdraft Guidance after 

notice and comment. See 69 FR 31858 

(June 7, 2004). 

Through its Overdraft Guidance, OTS 

explained concerns about how overdraft 

protection programs had been 

implemented and suggested Best 

Practices intended to improve these 

programs. The Office of the Comptroller 

of the Currency (OCC), the Board of 

Governors of the Federal Reserve 

(Board), the Federal Deposit Insurance 

Corporation (FDIC), and the National 

Credit Union Administration (NCUA) 

issued guidance shortly thereafter 

containing many of the same Best 

Practices. See Joint Guidance on 

Overdraft Protection Programs, 70 FR 

9127 (Feb. 24, 2005). Although OTS 

believes many institutions provide 

overdraft protection in a responsible 

manner, those that do not may be 

violating Federal law. 

As stated in the preamble to the 

Overdraft Guidance (74 FR at 8429): 

OTS reminds savings associations * * * 

that overdraft protection programs must 

comply with all applicable Federal laws and 

regulations. It is important that savings 

associations have their overdraft protection 

programs reviewed by counsel for 

compliance with all applicable laws prior to 

implementation. As these laws and 

regulations are subject to amendment, 

savings associations are reminded to monitor 

applicable laws and regulations for revisions 

and to ensure that their overdraft protection 

programs are fully compliant with them. 

Since 2005, the legal landscape has 

changed considerably. As discussed in 

detail in the proposed Supplemental 

Guidance, these changes are particularly 

evident with respect to Regulation DD 

(12 CFR part 230), which implements 

the Truth in Savings Act (12 U.S.C. 4301 

et seq.), and Regulation E (12 CFR part 

205), which implements the Electronic 

Fund Transfer Act (15 U.S.C. 1693 et 

seq.). The Board has significantly 

amended Regulation DD twice since 

2005 and Regulation E once since 2005 

to address overdraft services. See Truth 

in Savings; Final rule, 70 FR 29582 (May 

24, 2005); Truth in Savings; Final rule, 

official staff commentary, 74 FR 5584 

(Jan. 29, 2009); and Electronic Fund 

Transfers; Final rule, official staff 

commentary, 74 FR 59033 (Nov. 17, 

2009). Most recently, the Board 

proposed further amendments to 

Regulations E and DD to clarify certain 

overdraft issues. See Electronic Fund 

Transfers; Proposed rule, 75 FR 9120 

(March 1, 2010) and Truth in Savings; 

Proposed rule, 75 FR 9126 (March 1, 

2010). As a result, many of the Best 

Practices addressed in the Overdraft 

Guidance are now required by law. 

Further, since 2005 OTS has 

articulated the standards that it applies 

to determine whether an act or practice 

is unfair or deceptive under section 5 of 

the Federal Trade Commission Act (FTC 

Act) (15 U.S.C. 45). See Unfair or 

Deceptive Acts or Practices; Final rule, 

74 FR 5498, 5502–5504 (Jan. 29, 2009) 

(UDAP final rule). OTS’s proposed 

guidance, if adopted, would conclude 

that certain overdraft practices violate 

the FTC Act prohibition against unfair 

or deceptive acts or practices. The 

proposed Supplemental Guidance 

explains these situations in more detail. 

Discussion of the Supplemental 

Guidance 

This proposed Supplemental 

Guidance is designed to complement, 

rather than replace, the Overdraft 

Guidance. Accordingly, it does not 

revisit the safety and soundness 

concerns addressed in the Overdraft 

Guidance. Savings associations should 

continue to provide overdraft protection 

in conformity with the risk management 

advice contained in the Overdraft 

Guidance. In addition, OTS continues to 

encourage institutions to adhere to the 

following Best Practices, although the 

proposed Supplemental Guidance does 

not restate them: 

• Avoid promoting poor account 

management. The Overdraft Guidance 

recommended as a Best Practice that a 

savings association should not market 

an overdraft program in a manner that 

encourages routine or intentional 

overdrafts. Rather, it indicated that a 

savings association should present the 

program as a customer service that may 

cover inadvertent consumer overdrafts. 

70 FR at 8430. 

• Train staff to explain program 

features and other choices. The 

Overdraft Guidance recommended as a 

Best Practice that a savings association 

train customer service or consumer 

complaint processing staff to explain 

their overdraft protection program’s 

features, costs, and terms including how 

to opt out of the service. 70 FR at 8431. 

It also recommended that staff be able 

to explain other available overdraft 

products offered by the savings 

association and how consumers may 

qualify for them. Id. 

• Alert consumers before a 

transaction triggers any fees. The 

Overdraft Guidance recommended as a 

Best Practice that when consumers 

attempt to withdraw, transfer, or 

otherwise access funds made available 

through an overdraft protection program 

(other than by check), a savings 

association should alert consumers that 

completing the transaction will trigger 

an overdraft protection fee. Id. It also 

indicated that a savings association 

should give consumers an opportunity 

to cancel the attempted transaction. Id. 

The remainder of the Best Practices 

contained in the Overdraft Guidance 

would be updated by the proposed 

Supplemental Guidance. Aside from 

minor changes in the order in which 

they have been presented, the proposed 

Supplemental Guidance is organized 

into the same broad categories as the 

Overdraft Guidance: ‘‘Marketing and 

Consumer Communications’’ and 

‘‘Program Features and Operation.’’ 

However, for ease of reference, the 

following table shows where the 

Overdraft Guidance Best Practices are 

addressed in the proposed 

Supplemental Guidance. 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices 22683 

ORGANIZATION OF OVERDRAFT GUIDANCE VS. SUPPLEMENTAL GUIDANCE

Overdraft Guidance title Supplemental Guidance title and location 

Marketing and Consumer Communications 

Avoid promoting poor account management. No change—Best Practice remains in effect. 

Fairly represent overdraft protection programs and alternatives. Fairly represent overdraft protection programs—Part III.A.1. 

Provide information about alternatives when they are offered—Part 

III.A.2. 

Train staff to explain program features and other choices. No change—Best Practice remains in effect. 

Clearly explain the discretionary nature of the program. Same title, updated discussion—Part III.A.3. 

Distinguish overdraft protection services from ‘‘free’’ account features. Same title, updated discussion—Part III.A.4. 

Clearly disclose program fees. Same title, updated discussion—Part III.A.5. 

Clarify that fees count against the disclosed overdraft protection dollar 

limit. 

Clarify that fees will reduce the amount of overdraft protection provided—Part III.A.6. 

Demonstrate when multiple fees will be charged. Same title, updated discussion—Part III.A.7. 

Do not manipulate transaction-clearing rules. Same title, updated discussion—Part III.B.3. 

Explain the impact of transaction-clearing policies. Same title, updated discussion—Part III.A.8. 

Illustrate the type of transactions covered. Same title, updated discussion—Part III.A.9. 

Program Features and Operation 

Provide election or opt-out of service. Provide consumer choice—Part III.B.1. 

Alert consumers before a transaction triggers any fees. No change—Best Practice remains in effect. 

Prominently distinguish balances from overdraft protection funds availability. Disclose account balances in a manner that distinguishes consumer 

funds from funds made available through overdraft protection—Part 

III.A.10. 

Promptly notify consumers of overdraft protection program usage each 

time used. 

Same title, updated discussion—Part II.A.11. 

Consider daily limits on fees imposed. Reasonably limit aggregate overdraft fees—Part III.B.2. 

Monitor overdraft protection program usage. Same title, updated discussion—Part III.B.4. 

Fairly report program usage. Same title, updated discussion—Part III.B.5. 

In addition, the Supplemental 

Guidance addresses one practice that 

was not addressed in the Overdraft 

Guidance. The practice concerns 

informing consumers when access to 

overdraft services will be or has been 

reinstated after suspension. See Part 

III.A.12 of the proposed Supplemental 

Guidance. 

Request for Comment 

OTS requests comment on all aspects 

of the proposed Supplemental 

Guidance. OTS specifically requests 

comment on the following issues: 

• Part III.B.2 of the proposed 

Supplemental Guidance discusses 

reasonably limiting aggregate overdraft 

fees but does not provide guidance on 

reasonable per transaction overdraft 

fees. We note that section 102 of the 

Credit Card Accountability 

Responsibility and Disclosure Act of 

2009 (Credit CARD Act), Public Law 

111–24, 123 Stat. 1734 (2009), provides 

in the context of credit cards, ‘‘The 

amount of any penalty fee or charge that 

a card issuer may impose with respect 

to a credit card account under an open 

end consumer credit plan in connection 

with any omission with respect to, or 

violation of, the cardholder agreement, 

including any late payment fee, overthe-limit fee, or any other penalty fee or 

charge, shall be reasonable and 

proportional to such omission or 

violation.’’ Section 102 of Public Law 

111–24, 123 Stat. 1734 (2009). The 

Board has issued a proposal to 

implement that requirement. See Truth 

in Lending; Proposed rule, 75 FR 12334 

(March 15, 2010). Although section 102 

and the Board’s proposed rule apply 

only to penalty fees or charges on 

certain credit card accounts under openend consumer credit plans, should 

OTS’s final guidance include similar 

standards for overdraft fees on overdraft 

protection plans? 

• Is the relationship between the 

Overdraft Guidance and the proposed 

Supplemental Guidance clear? 

Paperwork Reduction Act 

In accordance with section 3512 of 

the Paperwork Reduction Act of 1995, 

44 U.S.C. 3501–3521 (PRA), OTS may 

not conduct or sponsor an information 

collection, and respondents are not 

required to respond to an information 

collection, unless it displays a currently 

valid Office of Management and Budget 

(OMB) control number. 

Comments are invited on: 

(a) Whether the collection of 

information is necessary for the proper 

performance of OTS’s, including 

whether the information has practical 

utility; 

(b) The accuracy of the estimates of 

the burden of the information 

collection, including the validity of the 

methodology and assumptions used; 

(c) Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

(d) Ways to minimize the burden of 

the information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology; 

and 

(e) Estimates of capital or start up 

costs and costs of operation, 

maintenance, and purchase of services 

to provide information. 

All comments will become a matter of 

public record. Please follow the 

instructions found in the ADDRESSES

caption above for submitting comments. 

A copy of the comments may also be 

submitted to the OMB desk officer for 

the Agencies: Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, New 

Executive Office Building, Washington, 

DC 20503. 

Title of Information Collection: 

Supplemental Guidance on Overdraft 

Protection Programs. 

OMB Control Numbers: 1550–0NEW. 

Regulation Requirement: 12 CFR 

563.27. 

Description: Through previous 

Overdraft Guidance, OTS explained 

concerns about how overdraft protection 

programs had been implemented and 

suggested ‘‘Best Practices’’ intended to 

improve these programs. Both failure to 

adhere to certain Best Practices and the 

emergence of controversial 

implementation strategies raise the risk 

that overdraft protection programs have 

been operated in an unfair or deceptive 

manner that violates section 5 of the 

mstockstill on DSKH9S0YB1PROD with NOTICES

22684 Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices 

1 Guidance on Overdraft Protection Programs, 70 

FR 8428 (Feb. 18, 2005), issued as CEO 

Memorandum #211, available at http:// 

files.ots.treas.gov/25211.pdf. The other Federal 

banking agencies and the National Credit Union 

Administration (NCUA) issued guidance shortly 

thereafter containing many of the same Best 

Practices. See Joint Guidance on Overdraft 

Protection Programs, 70 FR 9127 (Feb. 24, 2005). 

2For example, close to 90% of the institutions 

recently studied by the Federal Deposit Insurance 

Corporation (FDIC) had some form of overdraft 

protection program. See FDIC Study of Bank 

Overdraft Programs at page 5 (Nov. 2008) (FDIC 

Overdraft Study), available at http://www.fdic.gov/ 

bank/analytical/overdraft/ 

FDIC138_Report_FinalTOC.pdf. 

3Consistent with the ‘‘Best Practices’’ 

recommended in the Overdraft Guidance, OTS 

continues to encourage institutions to avoid 

promoting poor account management, train staff to 

explain program features and other choices, and 

alert consumers before a transaction triggers any 

fees. See 70 FR at 8430–31. 

4 12 CFR part 230. 

5 12 U.S.C. 4301 et seq. 

6 12 CFR part 205. 

7 15 U.S.C. 1693 et seq. 

8 15 U.S.C. 45. 

9See Unfair or Deceptive Acts or Practices; Final 

rule, 74 FR 5498, 5502–5504 (Jan. 29, 2009) (UDAP 

final rule). 

10 Id. (Board of Governors of the Federal Reserve 

(Board) and NCUA); Board and FDIC, Unfair or 

Deceptive Acts or Practices by State-Chartered 

Banks (Mar. 11, 2004), available at http:// 

www.federalreserve.gov/boarddocs/press/bcreg/ 

2004/20040311/attachment.pdf; Office of the 

Comptroller of the Currency (OCC) Advisory Letter 

2002–3, Guidance on Unfair or Deceptive Acts or 

Practices (Mar. 22, 2002), available at http:// 

www.occ.treas.gov/ftp/advisory/2002–3.doc; FTC 

Policy Statement on Unfairness, Letter from the 

FTC to the Hon. Wendell H. Ford and the Hon. John 

C. Danforth, S. Comm. on Commerce, Science & 

Transp. (Dec. 17, 1980), available at http:// 

www.ftc.gov/bcp/policystmt/ad-unfair.htm; and 

FTC Policy Statement on Deception, Letter from the 

FTC to the Hon. John H. Dingell, H. Comm. on 

Energy & Commerce (Oct. 14, 1983), available at 

http://www.ftc.gov/bcp/policystmt/ad-decept.htm. 

11 70 FR at 8431. 

FTC Act and the OTS Advertising Rule. 

Consequently, OTS is providing this 

Supplemental Guidance to clarify its 

supervisory expectations and the 

application of relevant laws and 

regulations. The burden associated with 

this collection of information may be 

summarized as follows: 

Type of Review: New collection. 

Affected Public: Savings associations. 

Estimated Number of Respondents: 

759. 

Estimated Time for Developing 

Disclaimers: 4 hours. 

Estimated Time for Training: 4 hours. 

Total Estimated Time Per 

Respondent: 8 hours. 

Total Estimated Annual Burden: 

6,072 hours. 

The text of the proposed OTS 

Supplemental Guidance on Overdraft 

Protection Programs follows: 

OTS Supplemental Guidance on 

Overdraft Protection Programs 

I. Background 

Most institutions offer consumers a 

variety of options to avoid overdrawing 

their deposit accounts. These include 

providing consumers with lines of 

credit and permitting consumers to link 

one account to another. Fee based 

overdraft programs, in which a flat fee 

is charged each time that an overdraft is 

paid, have become common. Overdraft 

protection has typically been extended 

for checking, debit card, automated 

teller machine (ATM), and other deposit 

account transactions. 

Through previous Guidance on 

Overdraft Protection Programs 1

(Overdraft Guidance), the Office of 

Thrift Supervision (OTS) explained 

concerns about how overdraft protection 

programs had been implemented and 

suggested ‘‘Best Practices’’ intended to 

improve these programs. While 

overdraft protection programs continue 

to be widely used,2 new concerns about 

their implementation have emerged. In 

addition, both new rules and wellestablished laws have been applied to 

these programs. OTS is, therefore, 

providing this Supplemental Guidance 

to clarify its supervisory expectations 

and the application of relevant laws and 

regulations, although the Overdraft 

Guidance remains in effect with respect 

to matters not addressed here. 

As discussed in Part III, many of the 

‘‘Best Practices’’ covered in the Overdraft 

Guidance are now mandated. However, 

even where these practices are not 

legally required, OTS strongly 

encourages institutions to implement 

them as a means of addressing 

reputation risk.3 Such risk has 

intensified due to public concern about 

the lack of choice, cost, and ways in 

which some overdraft protection 

programs have been provided. 

Savings associations should review 

their overdraft programs to confirm that 

they are being operated in a manner that 

is effective, compliant with the law, and 

fair to consumers. To inform the 

examination process, OTS has added 

several questions to the Preliminary 

Examination Response Kit (PERK) that 

gather information about the way 

associations manage their overdraft 

programs. OTS will use this information 

to determine whether such programs 

warrant heightened review. 

II. Legal Developments 

Changes in the legal landscape mean 

that many of the Best Practices covered 

in the Overdraft Guidance are now 

required by law. These changes are 

particularly evident with respect to 

Regulation DD,4 which implements the 

Truth in Savings Act,5 and Regulation 

E,6 which implements the Electronic 

Fund Transfer Act.7

Although OTS believes that many 

institutions provide overdraft protection 

in a responsible manner, the proposed 

guidance, if adopted, would conclude 

that institutions that engage in certain 

overdraft practices violate the 

prohibition on unfair or deceptive acts 

or practices in section 5 of the Federal 

Trade Commission Act (FTC Act).8 OTS 

has recently articulated the standards 

that it applies to determine whether an 

act or practice is unfair or deceptive 

under the FTC Act.9

Essentially, an act or practice is unfair 

if: (1) It causes or is likely to cause 

substantial injury to consumers; (2) the 

injury is not reasonably avoidable by 

consumers themselves; and (3) the 

injury is not outweighed by 

countervailing benefits to consumers or 

to competition. While established 

public policy may be considered, public 

policy may not serve as the primary 

basis for a determination that an act or 

practice is unfair. An act or practice is 

deceptive if: (1) there is a representation 

or omission of information that is likely 

to mislead consumers acting reasonably 

under the circumstances; and (2) that 

information is material to consumers. 

The adoption of these standards 

provides OTS with a useful method of 

analyzing whether practices are unfair 

or deceptive. The other federal financial 

institution regulatory agencies and FTC 

take the same approach.10

III. Specific Overdraft Practices 

A. Marketing and Consumer 

Communications 

The Overdraft Guidance 

recommended a number of Best 

Practices for communicating with 

consumers. It explained that following 

such practices can minimize consumer 

confusion and complaints, foster good 

customer relations, and reduce legal and 

compliance risks to the savings 

association. The following updates that 

discussion. 

1. Fairly represent overdraft 

protection programs. 

The Overdraft Guidance encouraged 

savings associations to identify the 

consequences of extensively using 

overdraft protection for consumers.11

The need to do so is heightened where 

associations target consumers who have 

experienced financial difficulties. For 

these consumers, associations should 

avoid marketing accounts covered by 

overdraft protection in a manner that 

leaves the impression that the accounts 

are designed to help avoid future 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 82 / Thursday, April 29, 2010 / Notices 22685 

12 70 FR at 8430–31. 

13See FDIC Overdraft Study at page 5 (finding 

that 62.1% of studied banks offered linked accounts 

and 50.1% of studied banks offer lines of credit). 

14For example, according to the FDIC Overdraft 

Study, almost half of the banks studied with linkedaccount programs (48.9%) reported charging no 

explicit fees for the service. The most common fee 

associated with linked-account programs was a 

transfer fee; where charged, the median transfer fee 

was $5. The primary cost associated with overdraft 

line of credit programs was the interest charged on 

funds advanced, usually accruing at an annual 

percentage rate (APR) of around 18 percent. FDIC 

Overdraft Study at page iii. 

15FDIC Affordable Small-Dollar Loan Guidelines, 

FIL–50–2007 (June 19, 2007), available at http:// 

www.fdic.gov/news/news/financial/2007/ 

fil07050.pdf. 

16See ‘‘The FDIC’s Small-Dollar Loan Pilot 

Program: A Case Study after One Year,’’ FDIC 

Quarterly 2009, Vol. 3, No. 2, available at http:// 

www.fdic.gov/bank/analytical/quarterly/ 

2009_vol3_2/smalldollar.html. 

17 70 FR at 8431. 

18 12 CFR pt. 230, Supp. I, Comment 230.8(a) 

–10(ii) (interpreting § 230.8(a)). 

19 12 CFR 230.11(b)(1)(iv). 

20 70 FR at 8431. 

21 12 CFR pt. 230, Supp. I, Comment 230.8(a)– 

10(v) (interpreting § 230.8(a)). 

22 12 CFR 230.8(a)(2) and 12 CFR pt. 230, Supp. 

I, Comment 230.8(a)–10(v). 

23Cf. Federal Trade Commission’s Guide 

Concerning Use of the Word ‘‘Free’’ and Similar 

Representations, 16 CFR 251.1 (‘‘[W]hen the 

purchaser is told that an article is ‘Free’ to him if 

another article is purchased, the word ‘Free’ 

indicates that he is paying nothing for that article 

and no more than the regular price for the other. 

Thus, a purchaser has a right to believe that the 

merchant will not directly and immediately 

recover, in whole or in part, the cost of the free 

merchandise or service by marking up the price of 

the article which must be purchased, by the 

substitution of inferior merchandise or service, or 

otherwise.’’) 

24 70 FR at 8431. 

financial challenges, especially when 

contrary information is omitted. For 

example, it would be a material 

misrepresentation to market an account 

as particularly suitable for those with 

prior credit or bank account problems 

without informing consumers of 

significant overdraft fees associated 

with an account. As consumers who 

have had problems with their bank 

account in the past may be particularly 

likely to overdraw their accounts in the 

future, such fees may be likely to lead 

to significant expenses for them. Failing 

to provide such consumers with fee 

information appears to significantly 

impair their ability to determine 

whether an account meets their needs. 

Consequently, these circumstances 

violate the FTC Act prohibition against 

deceptive practices. For similar reasons, 

they also violate OTS’s Advertising 

Rule. 

2. Provide information about 

alternatives when they are offered. 

The Overdraft Guidance 

recommended that, when informing 

consumers about an overdraft protection 

program, associations should also 

provide general information about other 

overdraft services or credit products, if 

any, that the associations offers.12 Such 

information should address how the 

terms, including fees, for these services 

or products differ. For example, 

research indicates that most institutions 

offer overdraft protection through linked 

accounts or lines of credit,13 and fees for 

such arrangements are typically lower 

than for automated overdraft 

programs.14 OTS continues to 

recommend providing information 

about these services as a Best Practice. 

An affordable small dollar term loan 

might also serve as an alternative to fee 

based overdraft protection. If an 

institution chooses to provide such 

credit, it may consider guidelines on 

affordable small dollar loans that the 

FDIC has developed.15 Research 

indicates that institutions that employ 

these guidelines have been able to offer 

affordable small dollar loans that meet 

multiple business goals, including 

building long term customer 

relationships, cross selling additional 

products, and creating goodwill in the 

community.16

3. Clearly explain the discretionary 

nature of the program. 

The Overdraft Guidance encouraged 

savings associations to make clear, 

where applicable, that the payment of 

an overdraft is discretionary.17

Consistent with this advice, Regulation 

DD has since been interpreted to 

prohibit a financial institution from 

representing that it will honor all checks 

or authorize the payment of all 

transactions that overdraw an account, 

when the institution retains discretion 

at any time not to honor checks or 

authorize transactions.18 Pursuant to 

Regulation DD, any advertisement 

promoting the payment of overdrafts 

must also now clearly disclose the 

circumstances under which the 

institution will not pay an overdraft.19

4. Distinguish overdraft protection 

programs from ‘‘free’’ account features. 

The Overdraft Guidance discouraged 

savings associations from promoting 

free accounts and overdraft protection 

programs in the same advertisement in 

a way that suggests that overdraft 

protection is provided free of cost.20

Regulation DD’s prohibition against 

misleading or inaccurate advertising has 

since been interpreted in a manner that 

essentially bans this practice. 

Specifically, Regulation DD has been 

interpreted to ban marketing an 

account-related service for which the 

institution charges a fee—such as 

overdraft protection—in an 

advertisement that also describes the 

account as ‘‘free’’ or ‘‘no cost’’ (or a 

similar term), unless the advertisement 

clearly and conspicuously indicates that 

there is a cost associated with the 

service.21 In addition, Regulation DD 

now prohibits institutions from 

advertising an account as ‘‘free’’ where 

any maintenance or activity fee may be 

imposed on it.22

Moreover, it would be a material 

misrepresentation to use marketing that 

focuses on account features that are 

‘‘free’’ or inexpensive, but omits 

information about the cost of each 

overdraft transaction. This is 

particularly true when consumers have 

been automatically enrolled in programs 

that charge a significant fee for each 

overdrawn transaction. The net 

impression of such marketing may be to 

mislead consumers acting reasonably 

under the circumstances to believe that 

the total cost of the account (including 

overdraft protection) is free or 

inexpensive and to be unaware that 

engaging in overdraft transactions will 

result in the assessment of significant 

overdraft fees. Consequently, these 

circumstances violate the FTC Act 

prohibition against deceptive practices. 

For similar reasons, they also violate 

OTS’s Advertising Rule. 

Although not discussed in the 

Overdraft Guidance, associations should 

also be cautious about representing 

overdraft protection as ‘‘free’’ when it is 

only provided for accounts with higher 

costs for other services or less favorable 

terms. Such a situation might occur 

when ‘‘free’’ overdraft protection is 

provided only for accounts with 

increased maintenance fees or for 

accounts that pay lower deposit interest 

rates. Although a reasonable consumer 

may be misled into believing that the 

‘‘free’’ overdraft protection was being 

provided at no cost, the consumer 

would essentially pay for the program 

through increased fees or a lower return, 

compared to other accounts offered by 

that association.23 This kind of 

misrepresentation is material because it 

may affect the consumer’s decision to 

select the account with ‘‘free overdraft 

protection’’ over another type of 

account. Consequently, these 

circumstances violate the FTC Act 

prohibition against deceptive practices. 

For similar reasons, they also violate 

OTS’s Advertising Rule. 

5. Clearly disclose program fees. 

The Overdraft Guidance encouraged 

savings associations to disclose the 

dollar amount of the fee for each 

overdraft and any interest rate or other 

fee that may apply.24 After the Overdraft 

Guidance was issued, Regulation DD 

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25Truth in Savings; Final rule, 70 FR 29582, 

29593 (May 24, 2005) (promulgating § 230.11(a)). 

26 Id. Further, as previously discussed in Part 

III.A.3, after the Overdraft Guidance was issued, 

Regulation DD was revised to provide that any 

advertisement promoting the payment of overdrafts 

must clearly disclose the circumstances under 

which the institution will not pay an overdraft. 12 

CFR 230.11(b)(1)(iv). 

27Truth in Savings; Final rule, official staff 

commentary, 74 FR 5584, 5593 (Jan. 29, 2009) 

(amending § 230.11(a)). This provision took effect 

on January 1, 2010. 

28 70 FR at 8431. 

29 Id. 

30 Id. 

31 Id. 

32 Id. 

33 12 CFR part 230, Supp. I, Comment 230.8(a)– 

10(iv) (interpreting § 230.8(a)). 

34 70 FR at 8431. 

35 Id. 

36 74 FR at 5593 (promulgating § 230.11(c)). This 

provision took effect on January 1, 2010. 

37 Id. 

38 70 FR at 8431. 

was amended to require that institutions 

that promote overdraft protection 

provide periodic deposit account 

statements that include a total dollar 

amount for all fees or charges imposed 

on the account for paying overdrafts.25

These disclosures were required for 

both the statement period and the 

calendar year-to-date.26 Recently, 

Regulation DD was further revised to 

require these disclosures by all 

institutions, not just those that promote 

overdraft protection.27

6. Clarify that fees will reduce the 

amount of overdraft protection 

provided. 

The Overdraft Guidance 

recommended that savings associations 

alert consumers that the fees charged for 

covering overdrafts, as well as the 

overdraft items themselves, will be 

subtracted from the overdraft protection 

limit disclosed.28 Failing to explain the 

treatment of such fees is deceptive. 

Such an omission may mislead a 

reasonable consumer into believing that 

a more substantial amount of overdraft 

protection is available for use than is 

actually available. Such an omission is 

material because it may affect the 

consumer’s decision about whether to 

engage in a transaction that would 

overdraft the account. For example, the 

consumer might believe that a 

transaction may be covered by overdraft 

protection when it would not because 

fees had eroded the limit available. 

Consequently, these circumstances 

violate the FTC Act prohibition against 

deceptive practices. For similar reasons, 

the omission of information on how fees 

affect overdraft limits also violates 

OTS’s Advertising Rule. 

7. Demonstrate when multiple fees 

will be charged. 

The Overdraft Guidance 

recommended that savings associations 

promoting overdraft protection 

programs clearly disclose that more than 

one overdraft fee may be charged against 

the account each day, depending on the 

number of items presented for 

withdrawal from the consumer’s 

account.29 Omitting such information is 

deceptive, whether a savings association 

promotes overdraft protection, or not. 

Such an omission may mislead a 

reasonable consumer into believing that 

only one overdraft fee will be charged 

against an account each day. Such an 

omission is material because it may 

affect a number of consumer decisions, 

including whether to open an account 

in the first place, or whether to later 

engage in more than one transaction that 

overdraws an account on a specific day. 

Consequently, such an omission violates 

the FTC Act prohibition against 

deceptive practices. For similar reasons, 

such an omission also violates OTS’s 

Advertising Rule. 

8. Explain the impact of transactionclearing policies. 

The Overdraft Guidance encouraged 

savings associations to clearly explain to 

consumers that transactions may not be 

processed in the order in which they 

occur and that the order in which 

transactions are processed and cleared 

can affect the total amount of overdraft 

fees incurred by a consumer.30 The 

Overdraft Guidance also recommended 

that associations clearly disclose their 

processing and clearing policies.31

Omitting such information is 

deceptive. Such an omission may 

mislead reasonable consumers to 

believe that transactions will be 

processed in the order in which they 

have occurred. The omission is material 

because it may affect a consumer’s 

decision about when to engage in 

transactions to minimize or avoid 

overdrafts. Consequently, the omission 

violates the FTC Act prohibition against 

deceptive practices. For similar reasons, 

such an omission also violates OTS’s 

Advertising Rule. 

9. Illustrate the type of transactions 

covered. 

The Overdraft Guidance 

recommended that savings associations 

clearly explain to consumers that 

overdraft protection fees may be 

imposed on transactions such as ATM 

withdrawals, debit card transactions, 

preauthorized automatic debits, 

telephone-initiated transfers, or other 

electronic transfers, if applicable, to 

avoid implying that check transactions 

are the only transactions covered.32

Since the Overdraft Guidance was 

issued, Regulation DD has been 

interpreted to expressly address this 

practice. This rule is now interpreted to 

prohibit advertisements that describe an 

institution’s overdraft service solely as 

protection for overdrawn checks, when 

the institution also provides overdraft 

protection when an account is 

overdrawn by other means, such as 

ATM withdrawals, debit card 

transactions, or other electronic fund 

transfers.33

10. Disclose account balances in a 

manner that distinguishes consumer 

funds from funds made available 

through overdraft protection. 

The Overdraft Guidance discouraged 

savings associations that provide 

consumers with a single deposit account 

balance from including overdraft 

protection funds in the balance.34

Instead, the Overdraft Guidance advised 

associations to disclose only a 

consumer’s own funds available for 

withdrawal. The Overdraft Guidance 

encouraged associations to separately 

and prominently identify the balance 

that does not include overdraft 

protection, if more than one balance is 

provided.35

Regulation DD has recently been 

amended to require that where an 

institution discloses balance 

information through an automated 

system, it must disclose a balance that 

excludes funds that the institution 

provides to cover overdrafts through a 

discretionary overdraft protection 

service, line of credit, or linked 

account.36 Institutions are permitted to 

provide another balance that includes 

these funds, so long as they prominently 

disclose the types of funds that have 

been included.37 Consistent with the 

Overdraft Guidance, OTS continues to 

encourage associations to make use of 

this approach whenever account 

balances are disclosed, not just when 

automated systems are employed. 

11. Promptly notify consumers of 

overdraft protection program usage each 

time used. 

The Overdraft Guidance advised 

savings associations to ‘‘promptly notify 

consumers of overdraft protection 

program usage each time used.’’ 38

Failing to do so—including failing to 

provide a consumer with the 

information necessary to return the 

account to a positive balance—is 

deceptive. Such omissions may mislead 

a reasonable consumer into assuming 

that an account is in balance, when it is 

not. The omissions are material because 

this type of information would likely 

influence decisions about whether to 

proceed with additional transactions or 

replenish a deposit account first. 

Prompt notification is important 

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39According to the FDIC Overdraft Study, about 

one-fourth of the banks it surveyed (24.6%) 

assessed fees on accounts that remained in negative 

balance status in the form of flat fees or interest 

charged on a percentage basis. FDIC Overdraft 

Study at page iii. 

40 70 FR at 8430. 

41 Id. at 8431. 

42Electronic Fund Transfers; Final rule, official 

staff commentary, 74 FR 59033, 59052 (Nov. 17, 

2009) (promulgating § 205.17). 

43According to the FDIC Overdraft Study, point 

of sale and debit transactions account for 41% of 

overdraft transactions at banks studied with 

automated programs. FDIC Overdraft Study at page 

78. Further, debit transactions at banks studied with 

automated programs are generally small—around 

$20—while the typical $27 overdraft fee often 

exceeds the value of the transaction. FDIC Overdraft 

Study at page 79 and n.51. According to a Center 

for Responsible Lending report, debit card 

transactions (either at the point of sale or ATM) 

cause 46% of total overdrafts, while checks trigger 

just 27%, while the average overdraft fee for a point 

of sale or ATM transaction is $34. See Eric 

Halperin, Lisa James & Peter Smith, Debit Card 

Danger: Banks offer little warning and few choices 

as customers pay a high price for debit card 

overdrafts (CRL Debit Card Danger Report), Center 

for Responsible Lending (January 25, 2007) at 7–8, 

available at http://www.responsiblelending.org/ 

overdraft-loans/research-analysis/Debit-CardDanger-report.pdf. 

44 In some circumstances, the Overdraft Guidance 

also endorsed a different approach—automatically 

providing overdraft protection, but offering 

consumers the opportunity to ‘‘opt out’’ of it. 

However, such an approach will soon be 

impermissible for ATM and one-time debit card 

transactions under Regulation E. Further, since the 

Overdraft Guidance was issued, questions have 

been raised about the value of an ‘‘opt out’’ strategy 

for consumers. See, e.g., 74 FR at 59038 (‘‘Due to 

various factors such as consumer inertia and the 

difficulty in anticipating future costs, consumers 

may end up with suboptimal outcomes even when 

given a choice.’’); U.S. Gov’t Accountability Office, 

Credit Cards: Increased Complexity in Rates and 

Fees Heightens Need for More Effective Disclosures 

to Consumers (Sept. 2006) at 26–27, available at 

http://www.gao.gov/new.items/d06929.pdf 

(indicating that although state laws applying to four 

of the six largest credit card issuers require them 

to provide consumers with the opportunity to ‘‘optout’’ of retroactive rate increases, few consumers 

exercise that right). 

45FDIC Overdraft Study at page iv. 

46 70 FR at 8431. 

47See, e.g., 12 CFR 550.380 (‘‘If the amount of 

your compensation for acting in a fiduciary capacity 

is not set or governed by applicable law, you may 

charge a reasonable fee for your services.’’) and 12 

CFR 533.6, 563e.27, 563e.43 (savings associations 

may charge reasonable copying and mailing fees). 

48See, e.g., FHLBB Op. Deputy Gen. Counsel 

(Oct. 22, 1986), available at 1986 FHLBB LEXIS 98 

(‘‘It is also our view that acceptance of reasonable 

fees for permissible activities is authorized for 

Federal associations.’’). 

because the shorter the time that elapses 

between the occurrence of an overdraft 

and consumer notification that overdraft 

protection has been accessed, the more 

benefit a consumer derives from the 

information. This is because the 

notification may prevent a consumer 

from incurring further overdrafts, as 

well as alert a consumer of the need to 

replenish funds in the underlying 

deposit account.39 Consequently, such 

omissions violate the FTC Act 

prohibition against deceptive practices. 

For similar reasons, they also violate 

OTS’s Advertising Rule. Where 

technologically feasible to do so, real 

time notification should be provided. 

12. Inform consumers when access to 

overdraft services will be or has been 

reinstated after suspension. 

Although not discussed in the 

Overdraft Guidance, it is deceptive to 

fail to notify consumers about the 

circumstances in which overdraft 

protection may be reinstated after 

suspension, e.g., when a deposit clears 

the outstanding overdraft and fee 

balance. Failure to provide this 

information, particularly when a 

consumer has been previously notified 

that overdraft protection has been 

suspended, may lead a reasonable 

consumer to believe that overdraft 

protection will definitely not be 

available, when in fact, it is or may be 

available. As a result, a consumer may 

overdraw an account without 

appreciating that significant overdraft 

fees may result. For example, a 

consumer may attempt a point of sale 

transaction believing that it will be 

denied without charge if sufficient 

funds are not available. However, if 

overdraft protection has been reinstated 

and the transaction is paid despite 

insufficient funds, the consumer would 

be charged potentially significant 

overdraft fees. Consequently, failure to 

clearly and conspicuously notify a 

consumer about the circumstances in 

which overdraft protection may be 

reinstated after suspension violates the 

FTC Act prohibition against deceptive 

practices. For similar reasons, the 

failure also violates OTS’s Advertising 

Rule. 

B. Program Features and Operation 

The Overdraft Guidance also 

recommended a number of Best 

Practices on the manner of providing 

overdraft protection. As the Overdraft 

Guidance noted, ‘‘appropriate 

management oversight of the program 

[is] fundamental to enabling responsible 

use of overdraft protection.’’ 40 The 

following updates that discussion. 

1. Provide consumer choice. 

A longstanding concern about 

overdraft protection is the lack of 

consumer choice. In response to this 

concern, the Overdraft Guidance 

encouraged institutions to ‘‘obtain 

affirmative consent of consumers to 

receive overdraft protection.’’ 41 Since 

then, the Board has revised Regulation 

E to partially address this practice.42

When compliance is required on July 1, 

2010, institutions will not be permitted 

to assess an overdraft fee for paying 

automated teller machine (ATM) 

withdrawals and one-time debit card 

transactions that overdraw a consumer’s 

account, unless the consumer 

affirmatively ‘‘opts in’’ to the 

institution’s payment of overdrafts for 

these transactions. 

The revision to Regulation E will 

address opt-in for certain electronic 

transactions, which account for the 

largest share of overdraft transactions.43

OTS recommends as a Best Practice, 

however, that associations also provide 

their customers with the opportunity to 

affirmatively choose or ‘‘opt in’’ to 

overdraft protection for transactions 

outside the scope of Regulation E’s optin requirement.44 Checking and ACH 

transactions fall into this category. 

Using an ‘‘opt in’’ approach to such 

transactions means that consumers who 

decline to consent to the payment of 

overdraft items will occasionally incur 

both a merchant fee and an insufficient 

funds fee for a returned item. However, 

as explained in Part III.B.2, research 

indicates that the large majority of 

overdraft fees are paid by a small 

portion of consumers who frequently 

overdraw their accounts. These 

consumers may have difficulty both 

repaying overdraft fees and bringing 

their accounts current, which may in 

turn cause them to incur additional 

overdraft fees. An opt-in approach could 

therefore ensure that these consumers 

make an informed, affirmative choice 

about whether to enroll in an overdraft 

protection program that could result in 

material overdraft fees unless sound 

account management is exercised. 

2. Reasonably limit aggregate 

overdraft fees. 

Research suggests that a relatively 

small number of consumers pay most of 

the overdraft fees incurred. For 

example, the FDIC Overdraft Study 

found that while 87% of consumers 

have less than five overdrafts per year, 

consumers that have more than five 

overdrafts annually pay over 90% of the 

total overdraft fees reported.45 The 

Overdraft Guidance helped address this 

problem by advising institutions to 

consider providing a daily cap on the 

overdraft fees charged against any one 

account.46

Historically, OTS and its predecessor 

agency, the Federal Home Loan Bank 

Board (FHLBB), have indicated in 

rules 47 and legal opinions 48 that fees 

charged by savings associations are to be 

‘‘reasonable.’’ Indeed, going back at least 

30 years the position of the agency has 

been that ‘‘a practice of charging grossly 

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49FHLBB Op. Acting Gen. Counsel (1980), 

available at 1980 FHLBB LEXIS 274. 

50FDIC Overdraft Study at pages 77–79. 

51 70 FR at 8431. 

52 70 FR at 8430–31. 

53See Part III.A.2. 

54 70 FR at 8431. 

55See 15 U.S.C. 1681s–2(a)(1)(A). 

56Procedures to Enhance the Accuracy and 

Integrity of Information Furnished to Consumer 

Reporting Agencies under Section 312 of the Fair 

and Accurate Credit Transactions Act, 74 FR 31484, 

31520 (July 1, 2009) (promulgating § 571.42(a)). 

57See 74 FR at 31520 (promulgating § 571.42(b)) 

and 74 FR at 31521 (promulgating paragraph I.(b)(1) 

of Appendix E to part 571). 

58See 74 FR at 31520 (promulgating § 571.41(a)) 

and 74 FR at 31521 (promulgating paragraph I.(b)(1) 

of Appendix E to part 571). 

unreasonable fees might be 

objectionable as unsafe or unsound.’’ 49

In some circumstances, failure to 

impose a reasonable limit on aggregate 

overdraft fees is an unfair practice under 

the FTC Act. The risk of engaging in an 

unfair practice is heightened when an 

association fails to limit fees for 

consumers who frequently overdraw 

their accounts and, as a result, such 

consumers incur substantial injury in 

the form of unreasonable and excessive 

overdraft fees. Depending on the 

circumstances, these consumers may 

not be able to avoid the harm caused by 

high overdraft fees. For example, where 

overdraft protection is marketed 

deceptively, consumers may lack the 

information needed to make a 

reasonable choice among programs. 

Regardless of how overdraft protection 

is promoted, those who frequently 

overdraw accounts may simply not have 

other options in the market, as they may 

have credit histories and other 

characteristics that prevent them from 

obtaining less expensive services. 

Notably, younger consumers and those 

with lower incomes tend to exhibit a 

pattern of recurring overdrafts and a 

high volume of fees.50 While some 

consumers may benefit from the 

occasional use of overdraft protection, 

the harm caused by high fees outweighs 

this benefit for consumers who 

frequently overdraw their accounts. 

Two of the circumstances in which the 

harm may particularly outweigh the 

benefit are where consumers’ aggregate 

overdraft fees exceed the average daily 

balance of their accounts or the 

overdraft limit on their accounts. Based 

on OTS supervisory experience, most 

institutions do not provide overdraft 

protection in a manner that permits 

overdraft fees to reach such levels. 

However, when fees become excessive, 

consumers may have difficulty both 

repaying overdrafts and bringing 

accounts current, which may cause 

them to incur additional fees. 

Aside from imposing a reasonable 

limit on overdraft fees, associations 

should also monitor customer usage of 

overdraft protection. This strategy is 

discussed below. Where use becomes 

excessive, associations should either 

limit it or offer consumers any lower 

cost services that may be available, as 

previously discussed in Parts III.A.1 and 

III.A.2. 

3. Do not manipulate transactionclearing rules. 

The Overdraft Guidance warns 

savings associations, ‘‘Transactionclearing rules (including check-clearing 

and batch debit processing) should not 

be administered unfairly or manipulated 

to inflate fees.’’ 51 Such a situation 

would occur if, for example, a savings 

association varied its transactionclearing rules on a daily, customer-bycustomer basis in order to maximize 

each customer’s fees. Where consumer 

accounts lack a sufficient balance, such 

a practice could cause consumers 

substantial injury in the form of 

unnecessary fees. Because consumers 

have no control over the order in which 

an institutions clears transactions and 

would not know which transaction 

clearing rule would be applied to any 

given transaction, this is a harm that 

consumers cannot avoid. While 

manipulating transaction-clearing order 

to inflate fees could increase an 

institution’s fee income, it would not 

benefit consumers. Moreover, such fee 

generation not only fails to benefit the 

market, it suggests a lack of 

transparency: Economically rational 

consumers would likely move their 

accounts to other institutions if they 

understood that their transactions were 

being posted in an unfair manner. 

Consequently, manipulating transaction 

clearing in this way violates the FTC 

Act prohibition against unfair practices. 

Instead of operating an overdraft 

protection program in this manner, a 

savings association should establish 

consistent transaction clearing rules for 

similar accounts. 

4. Monitor overdraft protection 

program usage. 

The Overdraft Guidance notes the 

importance of monitoring overdraft 

protection usage as both a safety and 

soundness consideration and a Best 

Practice.52 Where an association 

informs consumers that their usage will 

be held to specific limits, it is critical 

that the association monitor how the 

program is implemented as consumers 

are likely to rely on such 

representations. Such monitoring may 

identify excessive consumer usage of 

overdraft protection, which may 

indicate a need for alternative 

arrangements or other services.53

5. Fairly report program usage. 

The Overdraft Guidance advises 

savings associations against furnishing 

negative information to credit reporting 

agencies (CRAs) when overdrafts have 

been paid under the terms of an 

overdraft protection program.54 This 

advice was provided pursuant to the 

Fair Credit Reporting Act, which has 

long prohibited furnishing consumer 

information to a CRA that is known or 

reasonably believed to be inaccurate.55

Savings associations should also be 

cognizant of new rules issued by OTS 

and other agencies effective July 1, 

2010. These rules will require, among 

other things, that each furnisher 

establish and implement written 

policies and procedures regarding the 

accuracy and integrity of the 

information that it furnishes to a CRA.56

Each furnisher must consider agency 

guidelines, which include, as an 

objective, furnishing consumer account 

information that is accurate.57 In this 

context, ‘‘accuracy’’ means that the 

furnished information reflects the terms 

of the account and the consumer’s 

performance and other conduct with 

respect to the account.58 Furnishing 

negative information to CRAs when 

overdrafts are paid under the terms of 

an overdraft protection program may not 

be accurate because such information 

may not reflect the terms of the account 

or the consumer’s performance and 

other conduct with respect to the 

account. 

IV. Conclusion 

Overdraft protection programs can 

provide a service that consumers value. 

However, these programs pose a number 

of operational risks. OTS expects 

institutions under its jurisdiction to 

manage these risks in a responsible 

manner and comply with applicable 

laws and regulations. 

This concludes the text of the 

proposed OTS Supplemental Guidance 

on Overdraft Protection Programs. 

Dated: April 13, 2010. 

By the Office of Thrift Supervision. 

John E. Bowman, 

Acting Director. 

[FR Doc. 2010–10006 Filed 4–28–10; 8:45 am] 

BILLING CODE P 

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